Tag: chartoftheweek

ICAEW chart of the week: fiscal changes

Chart: Fiscal methodology changes and error corrections. £23.6bn 2018-19 deficit before changes, £41.4bn changes after changes.

The public sector finances were subjected this week to some big methodology changes by the Office for National Statistics (ONS), as illustrated by the #icaewchartoftheweek.

At the same time, the ONS took the opportunity to fix some errors in the reported fiscal numbers, including a correction of £2.6bn in 2018-19 relating to double counting by HMRC within corporation tax revenues. This is an error that turns out to have been occurring for the last 7 years, raising questions over the quality of controls over fiscal reporting within government. 

There were also a number of other revisions to the numbers amounting to £1.5bn, increasing the reported deficit for 2018-19 from £23.6bn to £27.7bn before methodology changes.

The treatment of student loans in the fiscal measures has been misleading for many years, and the ONS have finally dealt with the ‘fiscal illusion’ this created (as the OBR describes such flaws in the National Accounts).

The new treatment increases the deficit in 2018-19 by £12.4bn, with a charge of £8.6bn for loans that are never expected to be recovered (just under half of the total loans extended in the year), the removal of £2.3bn in interest on student loans also not expected to be collected, and £1.5bn from the loss experienced on the sale of part of the student loan portfolio during last year.

The treatment of pension funds has changed too, with a £1.3bn increase in the deficit relating to how the Pension Protection Fund and local authority and other public sector pension funds are recorded.

Overall, the fiscal deficit for 2018-19 has been increased to £41.4bn, a 75% increase in the headline number from that previously reported.

Not shown in the chart is the effect on public sector net debt. This was not affected by the student loans change, but was reduced at 31 March 2019 from £1,802bn to £1,773bn as a consequence of eliminating £29bn owed to local authority and other pension funds, without reflecting the associated liability to public sector employees. We disagree with this elimination, which we think understates the headline measure for the national debt.

Despite this, the overall effect of these changes is to improve the reporting of the public finances. A positive step forward, even if there remains a long way to go.

Further information:

– UK public sector finances, 24 September 2019 (ONS)

– Commentary on the public sector finances (OBR)

ICAEW chart of the week: Schools budget up £14bn, or is it £1.2bn?

English schools budget 2020-21 +£2.6bn, 2021-22 +£4.8bn, 2022-23 +£7.1bn

The Prime Minister’s announcement of a ‘£14bn package’ of more money was welcome news for English schools as they prepare to re-open their doors after the summer holidays.

Unfortunately, as is common with government announcements, there is a tendency to add several years together to give a bigger headline, exacerbated this time by the inclusion of inflation to make the headline even bigger! 

In reality the announcement is a lot less exciting, as illustrated by the #ICAEWchartoftheweek. The announced increase in the 5-16 schools’ budget in three years’ time of £7.1bn (from £45.1bn in 2019-20 to £52.2bn in 2022-23) turns out to be £3.6bn, or an average of £1.2bn a year after taking account of inflation and the expected growth in the number of school pupils of around 2% over that time.

This is still very good news for schools trying to manage within constrained budgets, but (as the IFS and others have reported) the increase will still be insufficient to restore real-terms per pupil funding to the levels seen before the financial crisis. A 12% increase in pupil numbers since 2009-10 has seen budgets squeezed as funding has been constrained to inflation-only increases for most of the last decade.

Ironically, the Chancellor wasn’t able to take advantage of the same trick in his announcement the following day of £400m for further education and sixth forms, despite the fact that this was proportionately a bigger increase. The announcement was only for one year, so he couldn’t add multiple years together to create a bigger headline, and HM Treasury no doubt held the line about not adding in inflation.

Either way, these announcements are indication of how the fiscal approach is changing after a decade of austerity and struggling public services. This week’s Spending Review will give us a few more clues about the direction of public spending, although if (as rumoured) the Budget is postponed then we may not find out what the plans for taxes and borrowing to fund these increases until the Spring.